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Microinsurance trends Some insurance companies are interested in reaching new markets, including low-income households Microinsurance is emerging out of the shadow of microfinance Greater variety of distribution channels are being used Experimentation with consumer education tools and methodologies is beginning Policymakers, regulators are showing a greater interest Product innovations are taking place to provide better coverage to more low-income people

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Informal insurance Insurable, without access Uninsurable through market mechanisms Formal insurance industry WEALTH POPULATION Who is insured by whom?

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Characteristics of the insurable poor Often work in the informal economy Irregular cash flows Often “un-banked” Manage risks through myriad of informal means, including social networks Possibly illiterate Limited familiarity with formal insurance May not trust insurance companies Vulnerable to risks

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Key characteristics of microinsurance 1.Accessible: physically, intellectually, financially 2.Simple, easy to understand policy document 3.Make the intangible tangible 4.Broadly inclusive, with few if any exclusions 5.Premiums accommodate irregular cash flows 6.Small sums insured, often for short terms 7.Pre-underwritten, community or group pricing

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Main Message: Microinsurance is not just a scaled down version of regular insurance…the product and processes need to be completely reengineered to meet the characteristics and preferences of the low-income market.

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DISSEMINATION RESEARCH TECHNICAL ASSISTANCE INNOVATION GRANTS MICROINSURANCE INNOVATION FACILITY Large number of low income people making informed choices to manage risk The Microinsurance Innovation Facility

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Overview of the Facility’s Grantees (11/09) see Grantee Community on www.ilo.org/microinsurance for detailswww.ilo.org/microinsurance

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Distribution Channels  Collaborating with national consumers’ association for rural water rights to develop life, health, personal accident and funeral insurance products for farming families, with premium payments collected with water bills  Launching a property insurance product sold through retailers and suppliers of cell phone airtime  Distributing life insurance and savings through “mom and pop” retail stores with handheld terminals  Distributing life insurance and savings product for the families of migrant workers through churches and schools

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Challenges (cont.) 6.Creating microinsurance experts 7.Promoting an enabling environment for microinsurance 8.Having better data to price products 9.Developing a database of product and institutional performance benchmarks 10.Assessing the impact: do the poor really benefit from insurance, and if so, under what circumstances

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Back to the future When the early Victorian insurance companies were first approached with suggestions that they should offer (insurance) to the poor, the short answer generally given was, in effect, that security was a luxury for which the poor could not afford to pay. The suggestions, however, were pressed. It was observed that for many centuries the poor had somehow contrived, by their own co-operative thrift, to provide some sort of financial security for themselves; and with some misgivings experiments were launched to see whether such security could be sold to them on commercial terms which would both give them at least as good a return as they were deriving through their spontaneous organizations, and enable the sellers to live on the proceeds of the trade. This is the origin of industrial assurance, which is simply life assurance adapted to the needs of weekly wage-earners. Industrial assurance began timidly and on a small scale; but it met a felt need, and consequently developed at a pace for which its founders were unprepared. While it was most rapidly expanding it was already being extensively reconstructed, as the mistakes of the experimental stage were discovered and retrieved. Dermot Morrah, A History of Industrial Life Assurance, Routledge (1955)